UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2009

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from  _____  to  _____ 

UNITED COMMUNITY BANKS, INC.

Georgia		58-1807304
(State of Incorporation)		(I.R.S. Employer Identification No.)
63 Highway 515
Blairsville, Georgia		30512
Address of Principal		(Zip Code)
Executive Offices

(706) 781-2265
(Telephone Number)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES þ NO o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YES o NO o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o		Smaller Reporting Company o
				(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

YES o NO þ

 

 

INDEX

PART I — Financial Information
Item 1. Financial Statements
Consolidated Statement of Income (unaudited) for the Three Months Ended March 31, 2009 and 2008			2
Consolidated Balance Sheet at March 31, 2009 (unaudited), December 31, 2008 (audited) and March 31, 2008 (unaudited)			3
Consolidated Statement of Changes in Shareholders’ Equity (unaudited) for the Three Months Ended March 31, 2009 and 2008			4
Consolidated Statement of Cash Flows (unaudited) for the Three Months Ended March 31, 2009 and 2008			5
Notes to Consolidated Financial Statements			6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			14
Item 3. Quantitative and Qualitative Disclosures About Market Risk			30
Item 4. Controls and Procedures			30
PART II — Other Information
Item 1. Legal Proceedings			31
Item 1A. Risk Factors			31
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			31
Item 3. Defaults Upon Senior Securities			31
Item 4. Submission of Matters to a Vote of Security Holders			31
Item 5. Other Information			31
Item 6. Exhibits			31
EX-31.1
EX-31.2
EX-32

Part I — Financial Information

Item 1 — Financial Statements

UNITED COMMUNITY BANKS, INC.

Consolidated Statement of Income (Unaudited)

		Three Months Ended
		March 31,
(in thousands, except per share data)		2009				2008
Interest revenue:
Loans, including fees		$	81,880			$	109,266
Investment securities, including tax exempt of $319 and $394			20,752				19,022
Federal funds sold, commercial paper and deposits in banks			442				222
Total interest revenue			103,074				128,510
Interest expense:
Deposits:
NOW			3,337				8,587
Money market			2,237				2,913
Savings			127				227
Time			36,053				38,884
Total deposit interest expense			41,754				50,611
Federal funds purchased, repurchase agreements and other short-term borrowings			553				4,318
Federal Home Loan Bank advances			1,074				5,745
Long-term debt			2,769				2,080
Total interest expense			46,150				62,754
Net interest revenue			56,924				65,756
Provision for loan losses			65,000				7,500
Net interest revenue after provision for loan losses			(8,076	)			58,256
Fee revenue:
Service charges and fees			7,034				7,813
Mortgage loan and other related fees			2,651				1,963
Consulting fees			1,021				1,807
Brokerage fees			689				1,093
Securities gains, net			303				—
Other			1,148				1,521
Total fee revenue			12,846				14,197
Total revenue			4,770				72,453
Operating expenses:
Salaries and employee benefits			28,839				28,754
Communications and equipment			3,729				3,832
Occupancy			3,807				3,716
Advertising and public relations			1,109				1,351
Postage, printing and supplies			1,182				1,592
Professional fees			2,293				1,921
Foreclosed property			4,319				911
FDIC assessments and other regulatory charges			2,682				1,266
Amortization of intangibles			739				767
Other			3,870				3,419
Goodwill impairment			70,000				—
Severance costs			2,898				—
Total operating expenses			125,467				47,529
(Loss) income before income taxes			(120,697	)			24,924
Income tax (benefit) expense			(16,924	)			8,846
Net (loss) income			(103,773	)			16,078
Preferred stock dividends			2,554				4
Net (loss) income available to common shareholders		$	(106,327	)		$	16,074
Basic (loss) earnings per common share		$	(2.20	)		$	.34
Diluted (loss) earnings per common share			(2.20	)			.34
Cash dividends per common share			—				.09
Stock dividends per common share (new shares issued per shares held)			1 for 130				—
Weighted average common shares outstanding — Basic			48,324				47,052
Weighted average common shares outstanding — Diluted			48,324				47,272

See notes to Consolidated Financial Statements

UNITED COMMUNITY BANKS, INC.

Consolidated Balance Sheet

		March 31,				December 31,				March 31,
(in thousands, except share and per share data)		2009				2008				2008
		(unaudited)				(audited)				(unaudited)
ASSETS
Cash and due from banks		$	103,707			$	116,395			$	169,538
Interest-bearing deposits in banks			5,792				8,417				13,417
Federal funds sold, commercial paper and short-term investments			24,983				368,609				—
Cash and cash equivalents			134,482				493,421				182,955
Securities available for sale			1,719,033				1,617,187				1,508,402
Mortgage loans held for sale			43,161				20,334				28,451
Loans, net of unearned income			5,632,705				5,704,861				5,967,839
Less allowance for loan losses			143,990				122,271				89,848
Loans, net			5,488,715				5,582,590				5,877,991
Premises and equipment, net			178,980				179,160				180,746
Accrued interest receivable			45,514				46,088				59,585
Goodwill and other intangible assets			251,060				321,798				324,041
Other assets			279,964				260,187				224,084
Total assets		$	8,140,909			$	8,520,765			$	8,386,255
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Deposits:
Demand		$	665,447			$	654,036			$	690,028
NOW			1,284,791				1,543,385				1,523,942
Money market			500,261				466,750				431,623
Savings			177,001				170,275				187,911
Time:
Less than $100,000			1,911,627				1,953,235				1,535,742
Greater than $100,000			1,350,190				1,422,974				1,375,000
Brokered			727,171				792,969				431,523
Total deposits			6,616,488				7,003,624				6,175,769
Federal funds purchased, repurchase agreements, and other short-term borrowings			158,690				108,411				532,896
Federal Home Loan Bank advances			260,125				235,321				615,324
Long-term debt			151,006				150,986				107,996
Accrued expenses and other liabilities			65,747				33,041				82,818
Total liabilities			7,252,056				7,531,383				7,514,803
Shareholders’ equity:
Preferred stock, $1 par value; 10,000,000 shares authorized; Series A; $10 stated value; 25,800 shares issued and outstanding			258				258				258
Series B; $1,000 stated value; 180,000 shares issued and outstanding			173,480				173,180				—
Common stock, $1 par value; 100,000,000 shares authorized; 48,809,301 shares issued			48,809				48,809				48,809
Common stock issuable; 161,807, 129,304 and 90,505 shares			3,270				2,908				2,410
Capital surplus			452,277				460,708				463,095
Retained earnings			158,201				265,405				359,248
Treasury stock; 322,603, 799,892 and 1,805,078 shares, at cost			(5,992	)			(16,465	)			(41,351	)
Accumulated other comprehensive income			58,550				54,579				38,983
Total shareholders’ equity			888,853				989,382				871,452
Total liabilities and shareholders’ equity		$	8,140,909			$	8,520,765			$	8,386,255

See notes to Consolidated Financial Statements

UNITED COMMUNITY BANKS, INC.

Consolidated Statement of Changes in Shareholders’ Equity (Unaudited)
For the Three Months Ended March 31,

																														Accumulated
		Series A				Series B								Common																Other
		Preferred				Preferred				Common				Stock				Capital				Retained				Treasury				Comprehensive
(in thousands, except share and per share data)		Stock				Stock				Stock				Issuable				Surplus				Earnings				Stock				Income (Loss)				Total
Balance, December 31, 2007		$	258			$	—			$	48,809			$	2,100			$	462,881			$	347,391			$	(43,798	)		$	14,261			$	831,902
Comprehensive income:
Net income																							16,078												16,078
Other comprehensive income:
Unrealized holding gains on available for sale securities, net of deferred tax expense and reclassification adjustment																															12,341				12,341
Unrealized gains on derivative financial instruments qualifying as cash flow hedges, net of deferred tax expense																															12,381				12,381
Comprehensive income																							16,078								24,722				40,800
Cash dividends declared on common stock ($.09 per share)																							(4,217	)											(4,217	)
Exercise of stock options (60,271 shares)																			(691	)							1,470								779
Common stock issued to Dividend Reinvestment Plan and employee benefit plans (31,944 shares)																			(266	)							769								503
Amortization of stock option and restricted stock awards																			975																975
Vesting of restricted stock (7,912 shares issued, 3,125 shares deferred)															91				(282	)							191								—
Deferred compensation plan, net, including dividend equivalents															238																				238
Shares issued from deferred compensation plan (716 shares)															(19	)			2								17								—
Tax benefit from options exercised																			476																476
Dividends on Series A preferred stock ($.15 per share)																							(4	)											(4	)
Balance, March 31, 2008		$	258			$	—			$	48,809			$	2,410			$	463,095			$	359,248			$	(41,351	)		$	38,983			$	871,452
Balance, December 31, 2008		$	258			$	173,180			$	48,809			$	2,908			$	460,708			$	265,405			$	(16,465	)		$	54,579			$	989,382
Comprehensive income:
Net loss																							(103,773	)											(103,773	)
Other comprehensive loss:
Unrealized holding gains on available for sale securities, net of deferred tax expense and reclassification adjustment																															8,231				8,231
Unrealized losses on derivative financial instruments qualifying as cash flow hedges, net of deferred tax benefit																															(4,260	)			(4,260	)
Comprehensive loss																							(103,773	)							3,971				(99,802	)
Stock dividends declared on common stock (367,081 shares)																			(6,932	)			(877	)			7,801								(8	)
Common stock issued to Dividend Reinvestment Plan and employee benefit plans (99,604 shares)																			(1,895	)							2,404								509
Amortization of stock options and restricted stock																			935																935
Vesting of restricted stock (6,268 shares issued, 11,875 shares deferred)															358				(518	)							160								—
Deferred compensation plan, net, including dividend equivalents															121																				121
Shares issued from deferred compensation plan (4,336 shares)															(117	)			9								108								—
Tax on option exercise and restricted stock vesting																			(30	)															(30	)
Dividends on Series A preferred stock ($.15 per share)																							(4	)											(4	)
Dividends on Series B preferred stock (5%)							300																(2,550	)											(2,250	)
Balance, March 31, 2009		$	258			$	173,480			$	48,809			$	3,270			$	452,277			$	158,201			$	(5,992	)		$	58,550			$	888,853

See notes to Consolidated Financial Statements

UNITED COMMUNITY BANKS, INC.

Consolidated Statement of Cash Flows (Unaudited)

		Three Months Ended
		March 31,
(in thousands)		2009				2008
Operating activities:
Net (loss) income		$	(103,773	)		$	16,078
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation, amortization and accretion			3,553				3,568
Provision for loan losses			65,000				7,500
Goodwill impairment charge			70,000				—
Stock based compensation			935				975
Gain on sale of securities available for sale			(303	)			—
Gain on sale of other assets			(23	)			(7	)
(Gain) loss on sale of other real estate owned			(217	)			336
Changes in assets and liabilities:
Other assets and accrued interest receivable			(9,332	)			7,005
Accrued expenses and other liabilities			49,552				(4,783	)
Mortgage loans held for sale			(22,827	)			(447	)
Net cash provided by operating activities			52,565				30,225
Investing activities:
Proceeds from sales of securities available for sale			14,219				25,000
Proceeds from maturities and calls of securities available for sale			174,220				174,956
Purchases of securities available for sale			(297,645	)			(296,228	)
Net increase in loans			(9,878	)			(61,100	)
Proceeds from sales of premises and equipment			102				288
Purchases of premises and equipment			(2,843	)			(3,773	)
Proceeds from sale of other real estate			22,606				7,663
Net cash used by investing activities			(99,219	)			(153,194	)
Financing activities:
Net change in deposits			(386,319	)			99,818
Net change in federal funds purchased, repurchase agreements, and other short-term borrowings			50,279				(63,566	)
Repayments of other borrowings			—				(42,000	)
Proceeds from FHLB advances			80,000				300,000
Repayments of FHLB advances			(55,000	)			(205,000	)
Proceeds from exercise of stock options			—				779
Proceeds from issuance of common stock for dividend reinvestment and employee benefit plans			509				503
Cash dividends on common stock			—				(4,229	)
Cash dividends on preferred stock			(1,754	)			(4	)
Net cash (used) provided by financing activities			(312,285	)			86,301
Net change in cash and cash equivalents			(358,939	)			(36,668	)
Cash and cash equivalents at beginning of period			493,421				219,623
Cash and cash equivalents at end of period		$	134,482			$	182,955
Supplemental disclosures of cash flow information:
Cash paid (received) during the period for:
Interest		$	51,207			$	65,789
Income taxes			(22,386	)			152

See notes to Consolidated Financial Statements

United Community Banks, Inc.

Notes to Consolidated Financial Statements

Note 1 — Accounting Policies

The accounting and financial reporting policies of United Community Banks, Inc. (“United”) and its subsidiaries conform to accounting principles generally accepted in the United States of America (“GAAP”) and general banking industry practices. The accompanying interim consolidated financial statements have not been audited. All material intercompany balances and transactions have been eliminated. A more detailed description of United’s accounting policies is included in the 2008 annual report filed on Form 10-K.

In management’s opinion, all accounting adjustments necessary to accurately reflect the financial position and results of operations on the accompanying financial statements have been made. These adjustments are normal and recurring accruals considered necessary for a fair and accurate presentation. The results for interim periods are not necessarily indicative of results for the full year or any other interim periods.

Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133 (“SFAS 161”), amends and expands the disclosure requirements of Financial Accounting Standards Board (“FASB”) Statement No. 133, Accounting for Derivative Instruments and Hedging Activities (“SFAS 133”) with the intent to provide users of financial statements with an enhanced understanding of: (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. SFAS 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about the fair value of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative instruments.

As required by SFAS 133, United records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether United has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Derivatives may also be designated as hedges of the foreign currency exposure of a net investment in a foreign operation. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. United may enter into derivative contracts that are intended to economically hedge certain of its risks, even though hedge accounting does not apply or United elects not to apply hedge accounting under SFAS 133.

Note 2 — Stock-Based Compensation

United has an equity compensation plan that allows for grants of incentive stock options, nonqualified stock options, restricted stock awards (also referred to as “nonvested stock” awards), stock awards, performance share awards or stock appreciation rights. Options granted under the plan can have an exercise price no less than the fair market value of the underlying stock at the date of grant. The general terms of the plan include a vesting period (usually four years) with an exercisable period not to exceed ten years. Certain option and restricted stock awards provide for accelerated vesting if there is a change in control (as defined in the plan). As of March 31, 2009, approximately 1,412,000 additional awards could be granted under the plan. Through March 31, 2009, only incentive stock options, nonqualified stock options and restricted stock awards and units had been granted under the plan.

The following table shows stock option activity for the first three months of 2009.

										Weighted-
										Average
						Weighted-				Remaining				Aggregate
						Average				Contractual				Intrinisic
Options		Shares				Exercise Price				Term (Years)				Value ($000)
Outstanding at December 31, 2008			3,350,701			$	19.99
Stock dividend adjustment			25,620				—
Granted			5,000				6.04
Exercised			—				—
Forfeited			(11,948	)			17.46
Expired			(27,049	)			13.28
Outstanding at March 31, 2009			3,342,324				19.88				5.9			$	—
Exercisable at March 31, 2009			2,010,960				18.68				4.4				—

The weighted average fair value of stock options granted in the first three months of 2009 and 2008 was $2.54 and $3.33, respectively. The fair value of each option granted was estimated on the date of grant using the Black-Scholes model. Because United’s option plan has not been in place long enough to gather sufficient information about exercise patterns to establish an expected life, United uses the formula provided by the Securities and Exchange Commission in Staff Accounting Bulletin No. 107 to determine the expected life of options. The weighted average assumptions used to determine the fair value of stock options are presented in the table below.

		Three Months Ended
		March 31,
		2009				2008
Expected volatility			40.68	%			23.42	%
Expected dividend yield			0.00	%			2.36	%
Expected life (in years)			6.25				6.25
Risk-free rate			1.83	%			3.21	%

United’s stock trading history began in March of 2002 when United listed on the Nasdaq National Market. For 2009, expected volatility was determined using United’s historical monthly volatility for the seventy five months ended December 31, 2008. Seventy five months was chosen to correspond to the expected life of 6.25 years. For 2008, expected volatility was determined using United’s historical monthly volatility over the period beginning in March of 2002 through the end of 2007. Compensation expense for stock options was $738,000 and $771,000 for the three months ended March 31, 2009 and 2008, respectively. Deferred tax benefits of $243,000 and $222,000, respectively, were included in the determination of income tax (benefit) expense for the three-month periods ended March 31, 2009 and 2008. The amount of compensation expense for both periods was determined based on the fair value of the options at the time of grant, multiplied by the number of options granted that were expected to vest, which was then amortized over the vesting period. The forfeiture rate for options is estimated to be approximately 3% per year. The total intrinsic value of options exercised during the three months ended March 31, 2008 was $275,000. No options were exercised during the three months ended March 31, 2009.

The table below presents the activity in restricted stock awards for the first three months of 2009.

						Weighted-
						Average Grant-
Restricted Stock		Shares				Date Fair Value
Outstanding at December 31, 2008			89,498			$	24.17
Stock dividend adjustment			580				—
Granted			5,000				6.04
Vested			(18,143	)			28.10
Outstanding at March 31, 2009			76,935				21.88

Compensation expense for restricted stock is based on the fair value of restricted stock awards at the time of grant, which is equal to the value of United’s common stock on the date of grant. The value of restricted stock grants that are expected to vest is amortized into expense over the vesting period. For the three months ended March 31, 2009 and 2008, compensation expense of $198,000 and $204,000, respectively, was recognized related to restricted stock awards. The total intrinsic value of the restricted stock was $320,000 at March 31, 2009.

As of March 31, 2009, there was $6.1 million of unrecognized compensation cost related to nonvested stock options and restricted stock awards granted under the plan. That cost is expected to be recognized over a weighted-average period of 1.2 years. The aggregate grant date fair value of options and restricted stock awards that vested during the three months ended March 31, 2009, was $526 million.

Note 3 — Common Stock Issued / Common Stock Issuable

United provides a Dividend Reinvestment and Share Purchase Plan (DRIP) to its shareholders. Under the DRIP, shareholders of record can voluntarily reinvest all or a portion of their cash dividends into shares of United’s common stock, as well as purchase additional stock through the plan with cash. United’s 401(k) retirement plan regularly purchases shares of United’s common stock directly from United. In addition, United has an Employee Stock Purchase Program (ESPP) that allows eligible employees to purchase shares of common stock at a 5% discount, with no commission charges. For the three months ended March 31, 2009 and 2008, United issued 99,604 and 31,944 shares, respectively, and increased capital by $509,000 and $503,000, respectively, through these programs.

United offers its common stock as an investment option in its deferred compensation plan. The common stock component of the deferred compensation plan is accounted for as an equity instrument and is reflected in the consolidated financial statements as common stock issuable. At March 31, 2009 and 2008, 161,807 and 90,505 shares, respectively, were issuable under the deferred compensation plan.

Note 4 — Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share for the three months ended March 31, 2009 and 2008.

(in thousands, except per share data)

		Three Months Ended
		March 31,
		2009				2008
Net (loss) income available to common shareholders		$	(106,327	)		$	16,074
Weighted average shares outstanding:
Basic			48,324				47,052
Effect of dilutive securities
Stock options and restricted stock			—				220
Warrants attached to trust preferred securities			—				—
Warrant granted with Series B preferred stock			—				—
Diluted			48,324				47,272
(Loss) earnings per common share:
Basic		$	(2.20	)		$	.34
Diluted		$	(2.20	)		$	.34

Note 5 — Assets and Liabilities Measured at Fair Value

On January 1, 2008, United adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS No. 157 applies to reported balances that are required or permitted to be measured at fair value under existing accounting pronouncements; accordingly, the standard does not require any new fair value measurements of reported balances.

SFAS No. 157 emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, SFAS No. 157 establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

Fair Value Hierarchy

		Level 1		Valuation is based upon quoted prices (unadjusted) in active markets for identical assets or liabilities that United has the ability to access.
		Level 2		Valuation is based upon quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals.
		Level 3		Valuation is generated from model-based techniques that use at least one significant assumption based on unobservable inputs for the asset or liability, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. United’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

The following is a description of valuation methodologies used for assets and liabilities recorded at fair value.

Securities Available for Sale

Investment securities available-for-sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level 2 securities include mortgage-backed securities issued by government sponsored entities, municipal bonds and corporate debt securities. Securities classified as Level 3 include asset-backed securities in less liquid markets.

Deferred Compensation Plan Assets and Liabilities

Included in other assets in the consolidated balance sheet are assets related to employee deferred compensation plans. The assets associated with these plans are invested in mutual funds and classified as Level 1. Deferred compensation liabilities, also classified as Level 1, are carried at the fair value of the obligation to the employee, which mirrors the fair value of the invested assets and is included in other liabilities in the consolidated balance sheet.

Loans Held for Sale

Loans held for sale are carried at the lower of cost or market value. The fair value of loans held for sale is based on what secondary markets are currently offering for portfolios with similar characteristics. As such, United classifies loans subjected to nonrecurring fair value adjustments as Level 2.

Loans

United does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an allowance for loan losses is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment in accordance with SFAS 114, Accounting by Creditors for Impairment of a Loan, (SFAS 114). The fair value of impaired loans is estimated using one of several methods, including collateral value, market value of similar debt, enterprise value, liquidation value and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. At March 31, 2009, substantially all of the total impaired loans were evaluated based on the fair value of the collateral. In accordance with SFAS 157, impaired loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price or a current appraised value, United records the impaired loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, United records the impaired loan as nonrecurring Level 3.

Foreclosed Assets

Foreclosed assets are adjusted to fair value upon transfer of the loans to foreclosed assets. Subsequently, foreclosed assets are carried at the lower of carrying value or fair value. Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral. When the fair value of the collateral is based on an observable market price or a current appraised value, United records the foreclosed asset as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, United records the foreclosed asset as nonrecurring Level 3.

Goodwill and Other Intangible Assets

Goodwill and identified intangible assets are subject to impairment testing. United’s approach to testing goodwill for impairment is to compare the business unit’s carrying value to the implied fair value based on multiples of earnings and tangible book value for recently completed merger transactions. In the event the fair value is determined to be less than the carrying value, the asset is recorded at fair value as determined by the valuation model. As such, United classifies goodwill and other intangible assets subjected to nonrecurring fair value adjustments as Level 3.

Derivative Financial Instruments

Currently, United uses interest rate swaps and interest rate floors to manage its interest rate risk. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts and the discounted expected variable cash payments. The variable cash payments are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves.

The fair values of interest rate options are determined using the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates fell below the strike rate of the floors. The variable interest rates used in the calculation of projected receipts on the floor are based on an expectation of future interest rates derived from observable market interest rate curves and volatilities. To comply with the provisions of SFAS No. 157, United incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, United has considered the effect of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.

Although United has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of March 31, 2009, United has assessed the significance of the effect of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, United has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The table below presents United’s assets and liabilities measured at fair value on a recurring basis as of March 31, 2009, aggregated by the level in the fair value hierarchy within which those measurements fall.

(in thousands)

														Balance at
		Level 1				Level 2				Level 3				March 31, 2009
Assets
Securities available for sale		$	—			$	1,719,033			$	—			$	1,719,033
Deferred compensation plan assets			3,467				—				—				3,467
Derivative financial instruments			—				72,942				—				72,942
Total		$	3,467			$	1,791,975			$	—			$	1,795,442
Liabilities
Deferred compensation plan liability		$	3,467			$	—			$	—			$	3,467
Total liabilities		$	3,467			$	—			$	—			$	3,467

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

United may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with GAAP. These include assets that are measured at the lower of cost or market that were recognized at fair value below cost at the end of the period. The table below presents United’s assets and liabilities measured at fair value on a nonrecurring basis as of March 31, 2009, aggregated by the level in the fair value hierarchy within which those measurements fall.

(in thousands)

														Balance at
		Level 1				Level 2				Level 3				March 31, 2009
Assets
Loans		$	—			$	—			$	148,786			$	148,786
Foreclosed assets			—				—				69,256				69,256
Goodwill			—				—				235,590				235,590
Total		$	—			$	—			$	453,632			$	453,632

Note 6 — Stock Dividend

During the first quarter of 2009, United declared a stock dividend at a rate of 1 new share for every 130 shares owned. The stock dividend has been reflected in the financial statements as an issuance of stock with no proceeds rather than a stock split and therefore prior period numbers of shares outstanding have not been adjusted. The amount of $8,000 shown in the equity statement as a reduction of capital related to the stock dividend is the amount of cash paid to shareholders for fractional shares.

Note 7 — Derivatives and Hedging Activities

Risk Management Objective of Using Derivatives

United is exposed to certain risks arising from both its business operations and economic conditions. United principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. United manages interest rate risk primarily by managing the amount, sources, and duration of its investment securities portfolio and debt funding and the use of derivative financial instruments. Specifically, United enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. United’s derivative financial instruments are used to manage differences in the amount, timing, and duration of United’s known or expected cash receipts and its known or expected cash payments principally related to United’s loans and wholesale borrowings.

The table below presents the fair value of United’s derivative financial instruments as well as their classification on the balance sheet as of March 31, 2009, December 31, 2008 and March 31, 2008.

Derivatives designated as hedging instruments under SFAS 133 (in thousands).

						Fair Value
Interest Rate		Balance Sheet				March 31,				December 31,				March 31,
Products		Location				2009				2008				2008
Asset derivatives		Other assets				$	72,942			$	81,612			$	48,454

There were no derivatives classified as liabilities in the balance sheet at March 31, 2009, December 31, 2008 or March 31, 2008.

Cash Flow Hedges of Interest Rate Risk

United’s objectives in using interest rate derivatives are to add stability to interest revenue and to manage its exposure to interest rate movements. To accomplish this objective, United primarily uses interest rate swaps and floors as part of its interest rate risk management strategy. For United’s variable-rate loans, interest rate swaps designated as cash flow hedges involve the receipt of fixed-rate amounts from a counterparty in exchange for United making variable-rate payments over the life of the agreements without exchange of the underlying notional amount. Interest rate floors designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty if interest rates fall below the strike rate on the contract in exchange for an up front premium. As of March 31, 2009, United had 14 interest rate swaps with an aggregate notional amount of $730 million and 5 interest rate floors with an aggregate notional amount of $300 million that were designated as cash flow hedges of interest rate risk.

The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the first quarter of 2009, such derivatives were used to hedge the variable cash flows associated with existing prime-based, variable-rate loans. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. During the three months ended March 31, 2009 and March 31, 2008 no hedge ineffectiveness was recognized on derivative financial instruments designated as cash flow hedges.

Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest revenue as interest payments are received on United’s prime-based, variable-rate loans. During the remaining nine months of 2009, United estimates that an additional $34.7 million will be reclassified as an increase to interest revenue.

United is hedging its exposure to the variability in future cash flows for forecasted transactions over a maximum period of fifty-two months, excluding forecasted transactions related to the payment of variable interest on existing financial instruments.

Fair Value Hedges of Interest Rate Risk

United is exposed to changes in the fair value of certain of its fixed rate obligations due to changes in LIBOR, a benchmark interest rate. United uses interest rate swaps to manage its exposure to changes in fair value on these instruments attributable to changes in the benchmark interest rate. Interest rate swaps designated as fair value hedges involve the receipt of fixed-rate amounts from a counterparty in exchange for United making variable rate payments over the life of the agreements without the exchange of the underlying notional amount. As of March 31, 2009, United had three interest rate swaps with an aggregate notional amount of $195 million that were designated as fair value hedges of interest rate risk.

For derivatives designated and that qualify as fair value hedges, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in earnings. United includes the gain or loss on the hedged items in the same line item as the offsetting loss or gain on the related derivatives. During the three months ended March 31, 2009, United recognized a loss of $1,013,000 related to changes in the fair value of the swaps that were offset by a gain of $1,114,000 related to changes in the fair value of the hedged items. During the three months ended March 31, 2009, United recognized net gains of $101,000 related to ineffectiveness of the hedging relationships. The table below presents the earnings impact of the changes in fair value of the swaps and the hedged items for the three months ended March 31, 2009 (in thousands).

Income Statement		Gain (Loss) on				Gain (Loss) on
Classification		Derivative				Hedged Item
Other fee revenue		$	(1,013	)		$	1,114

Tabular Disclosure of the Effect of Derivative Instruments on the Income Statement

The tables below present the effect of United’s derivative financial instruments on the Income Statement as of March 31, 2009 and March 31, 2008.

Derivatives in SFAS 133 Fair Value Hedging Relationships (in thousands).

Location of Gain (Loss)		Amount of Gain (Loss) Recognized in								Amount of Gain (Loss) Recognized in
Recognized in Income on		Income on Derivative								Income on Hedged Item
Derivative		March 31, 2009				March 31, 2008				March 31, 2009				March 31, 2008
Other fee revenue		$	(1,013	)		$	762			$	1,114			$	(756	)

Derivatives in SFAS 133 Cash Flow Hedging Relationships (in thousands).

Amount of Gain

Location of Gain

(Loss) Recognized

Amount of Gain

Location of Gain

Amount of Gain

(Loss) Recognized

in Income on

(Loss) Recognized

(Loss)

(Loss) Reclassified

in Income on

Derivative

in Other

Reclassified from

from Accumulated

Derivative

(Ineffective Portion

Comprehensive

Accumulated

Other

(Ineffective

and Amount

Income on

Other

Comprehensive

Portion and

Excluded from

Derivative

Comprehensive

Income into Income

Amount Excluded

Effectiveness

(Effective Portion)

Income into

(Effective Portion)

from

Testing)

March 31,

March 31,

Income (Effective

March 31,

March 31,

Effectiveness

March 31,

March 31,

2009

2008

Portion)

2009

2008

Testing)

2009

2008

Interest rate products

$

3,118

$

24,748

Interest revenue

$

10,990

$

4,483

Other fee revenue

$

—

$

—

Credit-risk-related Contingent Features

United manages its credit exposure on derivatives transactions by entering into a bi-lateral credit support agreement with each counterparty. The credit support agreements require collateralization of exposures beyond specified minimum threshold amounts. The details of these agreements, including the minimum thresholds, vary by counterparty.

United’s agreements with each of its derivative counterparties contain a provision where if either party defaults on any of its indebtedness, then it could also be declared in default on its derivative obligations. The agreements with derivatives counterparties also include provisions that if not met, could result in United being declared in default. United has agreements with certain of its derivative counterparties that contain a provision where if the United fails to maintain its status as a well-capitalized institution, it could be declared in default on its derivative obligations. United has an agreement with one counterparty that contains a provision where if United fails to maintain a minimum shareholders’ equity of $300 million, it could be declared in default on its derivative obligations. An agreement with another counterparty contains a provision where if United fails to maintain a minimum tier 1 leverage ratio of 5.0%, a minimum tier 1 risk-based capital ratio of 6.0%, and a minimum total risk-based capital ratio of 10%, it could be declared in default on its derivative obligations.

Note 8 — Recent Accounting Pronouncements

In April 2009, the FASB issued FASB Staff Position No. FAS 157-4 (“FSP FAS 157-4”), Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly. FSP FAS 157-4 provides additional guidance for estimating fair value in accordance with FASB Statement No. 157, Fair Value Measurements, when the volume and level of activity for the asset or liability have significantly decreased. This FSP also includes guidance on identifying circumstances that indicate a transaction is not orderly. This FSP emphasizes that even if there has been a significant decrease in the volume and level of activity for the asset or liability and regardless of the valuation technique(s) used, the objective of a fair value measurement remains the same. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. This accounting standard will be effective for United for the second quarter of 2009. United does not anticipate a significant impact on results of operations or financial position upon its adoption in the second quarter.

In April 2009, the FASB issued FASB Staff Position No. FAS 107-1 and APB 28-1 (“FSP FAS 107-1 and APB 28-1”), Interim Disclosures about Fair Value of Financial Instruments. FSP FAS 107-1 and APB 28-1 amends FASB Statement No. 107, Disclosures about Fair Value of Financial Instruments, to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This FSP also amends APB No. 28, Interim Financial Reporting, to require those disclosures in summarized financial information at interim reporting periods. This accounting standard will be effective for United for the second quarter of 2009. It will not have any impact on results of operations or financial position since it is for disclosure purposes only.

In April 2009, the FASB issued FASB Staff Position No. FAS 115-2 and FAS 124-2 (“FSP FAS 115-2 and FAS 124-2”), Recognition and Presentation of Other-Than-Temporary-Impairments. The objective of an other-than-temporary impairment analysis under existing GAAP is to determine whether the holder of an investment in a debt or equity security for which changes in fair value are not regularly recognized in earnings (such as securities classified as held-to-maturity or available-for-sale) should recognize a loss in earnings when the investment is impaired. An investment is impaired if the fair value of the investment is less than its amortized cost basis. This FSP amends the other-than-temporary impairment guidance in GAAP for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. This FSP does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. This accounting standard will be effective for United for the second quarter of 2009. United does not anticipate a significant impact on results of operations or financial position upon its adoption in the second quarter.

Note 9 — Reclassifications

Certain 2008 amounts have been reclassified to conform to the 2009 presentation.

Note 10 — Goodwill

A summary of the changes in goodwill for the three-months ended March 31, 2009 and 2008 is presented below, (in thousands).

		Three Months Ended
		March 31,
		2009				2008
Beginning balance		$	305,590			$	306,086
Purchase adjustments			—				(496	)
Impairment			(70,000	)			—
Ending balance		$	235,590			$	305,590

During the first quarter of 2009, United updated its annual goodwill impairment assessment as a result of its stock price falling significantly below tangible book value. As a result of the updated assessment, goodwill was found to be impaired and was written down to its estimated fair value. The impairment charge of $70 million was recognized as an expense in the first quarter 2009 consolidated statement of income.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This Form 10-Q contains forward-looking statements regarding United Community Banks, Inc. (“United”), including, without limitation, statements relating to United’s expectations with respect to revenue, credit losses, levels of nonperforming assets, expenses, earnings and other measures of financial performance. Words such as “may”, “could”, “would”, “should”, “believes”, “expects”, “anticipates”, “estimates”, “intends”, “plans”, “targets” or similar expressions are intended to identify forward-looking statements. These forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties that are subject to change based on various factors (many of which are beyond United’s control). The following factors, among others, could cause United’s financial performance to differ materially from the expectations expressed in such forward-looking statements:

	•		the condition of the banking system and financial markets;
	•		our limited ability to raise capital or maintain liquidity;
	•		our ability to pay dividends;
	•		our past operating results may not be indicative of future operating results;
	•		our business is subject to the success of the local economies in which we operate;
	•		our concentration of construction and land development loans is subject to unique risks that could adversely affect our earnings;
	•		we may face risks with respect to future expansion and acquisitions or mergers;
	•		changes in prevailing interest rates may negatively affect our net income and the value of our assets;
	•		if our allowance for loan losses is not sufficient to cover actual loan losses, earnings would decrease;
	•		competition from financial institutions and other financial service providers may adversely affect our profitability;
	•		we may be subject to losses due to fraudulent and negligent conduct of our loan customers, third party service providers or employees;
	•		business increases, productivity gains and other investments are lower than expected or do not occur as quickly as anticipated;
	•		competitive pressures among financial services companies increase significantly;
	•		the success of our business strategy;
	•		the strength of the United States economy in general;
	•		changes in trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System;
	•		inflation or market conditions fluctuate;
	•		conditions in the stock market, the public debt market and other capital markets deteriorate;
	•		financial services laws and regulations change;
	•		technology changes and United fails to adapt to those changes;
	•		consumer spending and saving habits change;
	•		unanticipated regulatory or judicial proceedings occur; and
	•		United is unsuccessful at managing the risks involved in the foregoing.

Additional information with respect to factors that may cause actual results to differ materially from those contemplated by such forward-looking statements may also be included in other reports that United files with the Securities and Exchange Commission. United cautions that the foregoing list of factors is not exclusive and not to place undue reliance on forward-looking statements. United does not intend to update any forward-looking statement, whether written or oral, relating to the matters discussed in this Form 10-Q.

Overview

The following discussion is intended to provide insight into the results of operations and financial condition of United and its subsidiaries and should be read in conjunction with the consolidated financial statements and accompanying notes.

United is a bank holding company registered with the Federal Reserve under the Bank Holding Company Act of 1956 that was incorporated under the laws of the state of Georgia in 1987 and commenced operations in 1988. At March 31, 2009, United had total consolidated assets of $8.1 billion, total loans of $5.6 billion, total deposits of $6.6 billion and stockholders’ equity of $889 million.

United’s activities are primarily conducted by its wholly owned Georgia banking subsidiary (the “Bank”) and Brintech, Inc., a consulting firm providing professional services to the financial services industry. The Bank operations are conducted under a community bank model that operates 27 “community banks” with local bank presidents and boards in north Georgia, the Atlanta metropolitan statistical area (“MSA”), the Gainesville MSA, coastal Georgia, western North Carolina, and east Tennessee.

United reported a net loss of $103.8 million for the first quarter of 2009, which included a non-recurring, non-cash charge of $70 million for goodwill impairment and severance costs of $2.9 million for a reduction in workforce. United’s net operating loss, which excludes the non-recurring goodwill impairment and severance charges was $32.0 million for the first quarter of 2009. This compared with net income of $16.1 million for the first quarter of 2008. Diluted operating loss per common share was $.71 for the first quarter of 2009, compared with diluted earnings per common share of $.34 for the first quarter of 2008. The goodwill impairment charge and severance costs in the first quarter of 2009 represented $1.45 and $.04, respectively, of the per share loss for the quarter of 2009 bringing the net loss per diluted share to $2.20. The first quarter of 2009 operating loss reflects the current recessionary economic environment and credit losses primarily resulting from the weak housing market.

Operating loss and operating loss per diluted share are non-GAAP performance measures. United’s management believes that operating performance is useful in analyzing the company’s financial performance trends since it excludes items that are non-recurring in nature. A reconciliation of these operating performance measures to GAAP performance measures is included in the financial highlights table on page 16.

Earnings decreased primarily as a result of the goodwill impairment charge, severance costs and a higher provision for loan losses related to the increase in charge-offs within the loan portfolio combined with margin compression due to an increase in non-performing assets, competitive deposit pricing and the ongoing effect of efforts to maintain liquidity. Although the margin was down from a year ago, it was up 38 basis points from the fourth quarter of 2008, reflecting improvement in loan and deposit pricing. Housing sales remain at low levels, leaving a surplus of finished housing and lot inventory in our markets, most notably in the Atlanta MSA. This decline in housing sales negatively affects both the cash flows of our residential construction and land development customers, and the demand for new land development loans.

Nonperforming assets, of $334.5 million, increased to 4.11% of total assets as of March 31, 2009, compared to 1.07 % as of March 31, 2008 and 2.94% as of December 31, 2008. This increase is a reflection of the continuing effects of declining home sales in the Atlanta MSA, which itself is indicative of the regional economic slowdown that is occurring in much of the Southeast.

Fee revenue decreased $1.4 million, or 10%, from the first quarter of 2008. With the exception of mortgage fees, all other fee revenue sources decreased from the first quarter of 2008. Mortgage fees were up $688,000, or 35%, reflecting higher refinancing activity resulting from the low interest rate environment. In terms of mortgage production, United closed 996 loans totaling $174 million in the first quarter of 2009 which set a new company record. The decrease in the other fee revenue categories primarily reflects the weak economy.

Operating expenses, excluding the $70 million goodwill impairment charge and $2.9 million in severance costs, increased $5.0 million, or 11%, from the first quarter of 2008, primarily due to higher expenses associated with and writedowns on foreclosed real estate properties and higher FDIC insurance premiums. Effective January 1, 2009, the FDIC raised deposit insurance rates on all insured depository institutions by seven basis points on the balance of insured deposits. United’s first quarter expenses do not contain any provision for the one-time special assessment that is currently proposed by the FDIC.

Critical Accounting Policies

The accounting and reporting policies of United are in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and conform to general practices within the banking industry. The more critical accounting and reporting policies include United’s accounting for the allowance for loan losses, intangible assets and income taxes. In particular, United’s accounting policies related to allowance for loan losses, intangibles and income taxes involve the use of estimates and require significant judgment to be made by management. Different assumptions in the application of these policies could result in material changes in United’s consolidated financial position or consolidated results of operations. See “Asset Quality and Risk Elements” herein for additional discussion of United’s accounting methodologies related to the allowance.

Table 1 — Financial Highlights
Selected Financial Information

																						First
		2009				2008																Quarter
		First				Fourth				Third				Second				First				2009-2008
(in thousands, except per share data; taxable equivalent)		Quarter				Quarter				Quarter				Quarter				Quarter				Change
INCOME SUMMARY
Interest revenue		$	103,562			$	108,434			$	112,510			$	116,984			$	129,041
Interest expense			46,150				56,561				53,719				55,231				62,754
Net interest revenue			57,412				51,873				58,791				61,753				66,287				(13	)%
Provision for loan losses			65,000				85,000				76,000				15,500				7,500
Fee revenue			12,846				10,718				13,121				15,105				14,197				(10	)
Total revenue			5,258				(22,409	)			(4,088	)			61,358				72,984			NM
Operating expenses (1)			52,569				52,439				56,970				49,761				47,529				11
Operating (loss) income before taxes			(47,311	)			(74,848	)			(61,058	)			11,597				25,455			NM
Income tax (benefit) expense			(15,335	)			(28,101	)			(21,184	)			4,504				9,377
Net operating (loss) income (1)			(31,976	)			(46,747	)			(39,874	)			7,093				16,078			NM
Noncash goodwill impairment charge			70,000				—				—				—				—
Severance costs, net of tax benefit			1,797				—				—				—				—
Net (loss) income			(103,773	)			(46,747	)			(39,874	)			7,093				16,078			NM
Preferred dividends			2,554				712				4				4				4
Net (loss) income available to common shareholders		$	(106,327	)		$	(47,459	)		$	(39,878	)		$	7,089			$	16,074			NM
PERFORMANCE MEASURES
Per common share:
Diluted operating (loss) earnings (1)		$	(.71	)		$	(.99	)		$	(.84	)		$	.15			$	.34			NM
Per share impact of goodwill impairment charge			(1.45	)			—				—				—				—
Per share impact of severance costs			(.04	)			—				—				—				—
Diluted (loss) earnings			(2.20	)			(.99	)			(.84	)			.15				.34			NM
Cash dividends declared			—				—				—				.09				.09
Stock dividends declared (5)			1 for 130				1 for 130				1 for 130				—				—
Book value			14.70				16.95				17.12				17.75				18.50				(21	)
Tangible book value (3)			9.65				10.39				10.48				11.03				11.76				(18	)
Key performance ratios:
Return on tangible equity (2)(3)			NM	%			NM	%			NM	%			5.86	%			13.16	%
Return on equity (2)(4)		NM				NM				NM					3.41				7.85
Return on assets (4)		NM				NM				NM					.34				.78
Net interest margin (4)			3.08				2.70				3.17				3.32				3.55
Operating efficiency ratio (3)			79.29				81.34				79.35				65.05				59.03
Equity to assets			11.64				10.08				10.28				10.33				10.30
Tangible equity to assets (3)			8.30				6.59				6.65				6.77				6.73
Tangible common equity to assets (3)			6.13				6.23				6.65				6.77				6.73
ASSET QUALITY
Net charge-offs		$	43,281			$	74,028			$	55,736			$	14,313			$	7,075
Non-performing loans (NPLs)			259,155				190,723				139,266				123,786				67,728
Foreclosed properties			75,383				59,768				38,438				28,378				22,136
Total non-performing assets (NPAs)			334,538				250,491				177,704				152,164				89,864
Allowance for loan losses			143,990				122,271				111,299				91,035				89,848
Allowance for loan losses to loans			2.56	%			2.14	%			1.91	%			1.53	%			1.51	%
Net charge-offs to average loans (4)			3.09				5.09				3.77				.97				.48
NPAs to loans and foreclosed properties			5.86				4.35				3.03				2.55				1.50
NPAs to total assets			4.11				2.94				2.20				1.84				1.07
AVERAGE BALANCES
Loans		$	5,675,054			$	5,784,139			$	5,889,168			$	5,933,143			$	5,958,296				(5	)
Investment securities			1,712,654				1,508,808				1,454,740				1,507,240				1,485,515				15
Earning assets			7,530,230				7,662,536				7,384,287				7,478,018				7,491,480				1
Total assets			8,312,648				8,449,097				8,146,880				8,295,748				8,305,621				—
Deposits			6,780,531				6,982,229				6,597,339				6,461,361				6,051,069				12
Shareholders’ equity			967,505				851,956				837,487				856,727				855,659				13
Common shares — basic			48,324				47,844				47,417				47,158				47,052
Common shares — diluted			48,324				47,844				47,417				47,249				47,272
AT PERIOD END
Loans		$	5,632,705			$	5,704,861			$	5,829,937			$	5,933,141			$	5,967,839				(6	)
Investment securities			1,719,033				1,617,187				1,400,827				1,430,588				1,508,402				14
Total assets			8,140,909				8,520,765				8,072,543				8,264,051				8,386,255				(3	)
Deposits			6,616,488				7,003,624				6,689,335				6,696,456				6,175,769				7
Shareholders’ equity			888,853				989,382				816,880				837,890				871,452				2
Common shares outstanding			48,487				48,009				47,596				47,096				47,004